Canada tightens mortgage rules to avoid "bubble"

OTTAWA (Reuters) - Canada tightened the rules on
government-backed mortgages on Wednesday to try to avoid the
sort of housing meltdown that has damaged the U.S. economy.

The Finance Department said it was reducing the maximum
amortization period for new government-backed mortgages to 35
years from 40 years.

It will also require a minimum downpayment of 5 percent for
such mortgages; previously, government insurance was available
for up to 100 percent of the value of a house.

"Today's announcement marks a responsible and measured
approach by the government to ensure Canada's housing market
remains strong and to reduce the risk of a U.S.-style housing
bubble developing in Canada," the department said, adding that
the measures would take effect on October 15.

The government hastened to emphasize that Canada's housing
and mortgage markets were performing much better than in the
United States.

Canadian housing prices are in line with economic factors
such as low interest rates, rising incomes and a growing
population and the demand for residential housing remains
buoyant at more than 200,000 housing starts a year, it said.

The percentage of bank mortgages in arrears is also stable
at 0.27 percent, the lowest levels experienced since 1990 and
well below the highs of 0.65 percent in 1992 and 1997.

"The historically prudent and cautious approach taken by
Canadian financial institutions to mortgage lending, combined
with a sound supervisory regime, has allowed Canada to maintain
strong and secure housing and mortgage markets," it said.
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